The first month of calendar year 2014 has been bad for the markets with SENSEX losing 657 points or 3.10%. The fall in the last week of January was similar at 619 points or 2.93%. It could be said that at the end of the previous week the markets were flat for the month. RBI governor Raghuram Rajan surprised everyone with a repo hike of 25 basis points taking the repo rate to 8%. This was most unexpected as he had said in the previous meeting that if inflation at the consumer level softened he would stop rate hikes. Inflation had softened because fruits and vegetables had become cheaper and almost everybody was confident that this time around there would be no hike. But RR had other thoughts and ideas.
The government raised the cap on LPG cylinders from 9 to 12 as an election sop and it was rightly criticised by the RBI governor as being misdirected subsidy. One only hopes that in the remaining 60 days or thereabouts the present government does not squander our precious resources on misdirected and unwarranted sops in the hope of getting votes.
One sees the curious case of the Delhi CM facing flak from all quarters about the cheaper electricity rates with power suppliers threatening to pull the plug on Delhi. What cost cheaper electricity if there is none? If one has to roll back prices to those prevalent 8 years ago one needs to also roll back income to those levels. I don’t think anyone is interested in the latter.
Fed Chairman Bernanke tapered further from 75 billion to 65 billion and it appears going forward he would continue to do this every month. He retires but his policies are likely to continue in the same fashion when Janet Yellen takes over as the new chief.
FII’s were net sellers for the week of Rs 3,200 crs and with this they have turned net sellers of Rs 200 crs for the month of January. The first month has certainly not panned out well for the Indian markets. Domestic institutions were net sellers of Rs 82 crs during the week and Rs 2,700 crs in the month.
For reasons best known to SEBI they have chosen to withdraw the compulsory grading of IPO’s. One wonders whether the capital market watchdog is there to safeguard investors or protect corporates. If grading was not achieving the purpose, measures to get results should have been strengthened not done away with. Making life easier for the corporates may result in more IPO’s coming to the market but the quality would deteriorate. There are no safeguards in place and there would be more violations than earlier. Here by doing away with the grading, SEBI has permitted merchant bankers and Corporates to have a field day and there would be fewer checks and balances in place then before.
The fall in the markets on Monday and Thursday have left downward gaps which would act as resistances going forward. These gaps are between 21,123-20,899 and 20,613-20,528 on the SENSEX. Similar gaps on the NIFTY are at 6,263-6,188 and 6,109-6082. These gaps become important in any recoveries in the market. If markets need to go up quickly these gaps must get violated or covered as soon as possible.
Markets are looking vulnerable and tired. With the one continuous support that was always there in the form of FII’s being buyers now turning net sellers, vulnerability has increased. Stock specific news alone would drive the market going forward.
Asset quality of banks has been under stress and the entire banking sector has been under tremendous pressure during the last week. The BSEBANKEX has lost 6.72% in the week. I believe this sector would bottom out with State Bank declaring its results. This would probably be the last bank to do so and being the largest bank would also have the largest stressed asset book. A turnaround in the markets could coincide with these results and one must keep in mind that the banking space has a large weightage in the benchmark indices.
The current flavour is politics and one has plenty of masala and dope coming from our honourable politicians. So when the chips are down and the mood bad because of the market performance, cheer up and see what our honourable politicians are saying and doing. You certainly will not be disappointed with them.
